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March 16, 2005

Fair Trade Coffee

Just a vague thought, but do we really need to continue to worry about Fair Trade Coffee any more?

A lack of rain in Vietnam and Brazil, the world's two largest producers, have sent the composite price of a pound of coffee from 48.9 cents in June 2003 to more than 79 cents today. In Dak Lak province, the chief growing area in Vietnam, the drought is the worst for 28 years and is reckoned to have damaged more than half the region's coffee bushes, reducing the size of the useable crop by 20pc.

Vietnam produces lower quality Robusta beans, which manufacturers blend with the higher quality South American Arabica beans. Fewer Robusta means roasters are forced to use more higher quality beans to produce their blends, forcing up prices across the industry. Colombian Arabica beans have increased in price from 65 cents a pound to more than $1.42 in the past 18 months.

So the price of beans has doubled....does the rhetoric about prices paid being too low still stand?

March 16, 2005 in Make Poverty History | Permalink


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As far as I understood FairTrade the farmers and buyers set a fixed price at which to trade - one considered 'fair'. So, I suppose, if coffee productions are hit and the price goes up a lot the 'free trade' price could be better than the 'fair trade' price.
Which would be funny.

Posted by: Monjo | Mar 16, 2005 3:41:51 PM

Of course, the fluctuating price in the very short term (one harvest) does absolutely nothing about the fact that the global coffee trade is controlled by a small number of buyers who exploit their market position to the detriment of small farmers. An oligopsony, I believe it's called.

Tim adds: The measure of whether an oligopsony exists or not would be whether they can control their input prices or not. The doubling of bean prices shows that they cannot, therefore that an oligopsony does not exist.
Problem solved eh?

Posted by: Jarndyce | Mar 16, 2005 4:01:51 PM

Well, that would be one factor - though the fact that there are c.5 significant global buyers and thousands of small sellers would suggest the opposite rather more strongly. Of course, they aren't able to control their input prices against climatic shocks and the like. What oligopsony could?

Tim adds: Errr, an effective one?

Posted by: Jarndyce | Mar 16, 2005 10:30:32 PM

An oligopsony doesn't have to be a perfect oligopsony to have a significant effect - the question is whether the rise in prices is significantly lower than it would have been if market power were more evenly distributed. I don't know the answer to this; I suspect you don't either.

Posted by: john b | Mar 17, 2005 11:10:00 AM

Even with the price of green coffee rising Fair Trade is always a better deal. Fair Trade will always be at least five cents above the free trade price. Besides the farmer is not necessarily getting all of the market increase there are still alot of middle men involved. Fair Trade by passes these people.

Posted by: Bill h | Apr 30, 2005 2:52:42 AM